As a homeowner, your regular mortgage payment is a significant item in your budget. Whether you make monthly, bi-weekly, or weekly payments, this commitment requires substantial funds.
Therefore, it’s no wonder that you may be working hard to pay down your mortgage quickly. But, hold on! There are circumstances when paying your mortgage off faster is a good idea and situations where it isn’t. Here’s my advice.
When to pay down your mortgage quickly
You receive the money you weren’t expecting – Did you receive a bonus at work, an income tax refund or a small inheritance that you weren’t expecting? While I’m sure you can think of many ways to spend a windfall, consider putting this money towards your mortgage. Since they’ll go directly on the principal, you’ll be saving future interest payments on this amount.
Your interest rate is high – If you’ve signed an agreement with a fairly high-interest rate, it can be a good idea to try to pay your mortgage off faster. Maybe you have some savings invested that’s not earning much interest and you’d be better off redirecting these dollars to your mortgage. Having said that, make sure you still have enough cash put aside to meet other needs.
When you want more peace of mind – There’s definitely a feeling of security when you own your home outright. In the meantime, you can increase your peace of mind with a simple move like increasing your payment frequency or making an extra payment when you can. Knowing you’re building up the equity in your home faster can be comforting.
When not to pay your mortgage off faster
You have a low-interest rate – Perhaps your excellent credit rating has allowed you to lock in a very good interest rate with your mortgage lender. In this case, any extra money that you have might earn a higher return if you invest it.
Funds are needed for other expenses – There could be upcoming expenses that you must have some cash available to cover, so it’s wise not to put more towards your mortgage in that case. Keep in mind, too, that there are always unexpected events and you should have emergency savings set aside for these.
You have other debt at a higher interest rate – Do you have a car loan or an unpaid balance on your credit card? This sort of consumer debt can come with an interest rate higher than what you’re paying on your mortgage loan. Therefore, it makes sense to pay down this debt first.
Finally, it’s important to be aware of your mortgage contract terms when it comes to deciding which way to go. These will spell out how you can pay more towards your loan.
If you’re looking for a mortgage broker or lender, I can certainly put you in touch with a few reputable people to choose from. Having a knowledgeable mortgage expert to guide you through your options is just as important as hiring the best real estate agent. Please contact me if you think I can help.